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Johannesburg - Siemens said it’s weighing a bid for a R51.22bn investment project as South Africa’s programme to generate power from gas gains momentum.
“The process is moving now," Siemens SA CEO Sabine Dall’Omo said in a phone interview from Johannesburg. "South Africa is ready for foreign direct investment.”
Dall’Omo said Siemens has had “significant discussions" with potential partners about bidding for the contract to develop 3 000 megawatts of gas-fired generation at two ports on the east coast of South Africa.
The plan announced by the Department of Energy on October 3 involves importing liquefied natural gas to generate electricity sold under a 20-year power-purchase agreement with Eskom.
Energy Minister Tina Joemat-Pettersson declared gas power development a priority in August last year as the government tries to reduce the nation’s dependence on coal. The programme will create jobs and build generating capacity that consumes less water than existing coal-fired plants, according to Dall’Omo.
Ambitious timetable
The bidding teams will pre-qualify in April after making submissions in February, with a final request for proposals planned for August, according to the energy department.
"The timetable seems ambitious, given the complexity," Tracy Lothian, vice president of LNG global market development for Exxon Mobil, said last week
at a conference in Cape Town. Bidding consortia will need as much information as possible, she said.
Eskom CEO Brian Molefe created investor uncertainty in the energy industry in July when he questioned the need for procuring renewable power from private developers. One month later, he refused to sign an agreement for a solar-power plant that had already been approved by the government.
Siemens will require "certain clarity with regards to the role that Eskom will take" in the gas-to-power programme, Dall’Omo said, noting that the utility is one of its customers.
Complex financing
While construction of the gas plants will be fairly standard, "the most complex and time-consuming portions will be the financing around the gas itself,” she said. That includes hedging the foreign currency risk associated with purchasing LNG, which is priced in dollars.
The project also requires third-party access to infrastructure so that LNG can be supplied to other power plants as well as used in commercial, residential and transport applications, BMI Research said in a report on Thursday.
“We note upside risk to South African gas consumption forecasts, which are currently constrained by domestic production and pipeline imports,” BMI said.
A successful South African project could also have positive ripple effects on the wider region, which could tap the developing industry and expertise, according to Dall’Omo. "There’s massive influence into our neighbouring countries,” she said.
